Gateway loss balloons to $339m

Revenues miss expectations

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Gateway's acquisition of eMachines once again hammered the parent's finances, widening its Q2 loss by a hefty margin.

During the quarter, Gateway achieved $838m in revenue, up just four per cent on the year-ago quarter's $800m, a four per cent fall from Q1's total, and well below the company's forecast of $860-880m.

CEO Wayne Inouye blamed the failure to meet its revenue expectations on logistical problems and a desire to book some sales as Q3 gains. The upshot was a delay in delivering $26m worth of PCs until the current quarter, which would have only just brought the company into its anticipated Q2 revenue range.

In June the company upped its revenue forecast from $798m to the $860-880m range on the back of stronger-than-expected sales. It should have stuck to its guns.

Q2 was the first quarter in which eMachines' sales were added to Gateway's books. The decline shows they are not yet compensating for the sales lost as a result of Gateway's decision to close its chain of stores. However, unit shipments were up 32 per cent sequentially and 62 per cent year on year.

Gateway's net loss for the period totalled $339m, 364 per cent higher than Q2 2003's $73m loss, and 97 per cent up on the $172m it lost during Q1 2004. A big chunk of the Q2 2004's figure came from the $290m acquisition of eMachines and the cost of the store closures and associated lay-offs.

Looking ahead, CFO Rod Sherwood said he expects to record a Q3 revenue between $900m and $950m. PC sales are expected to rise when Gateway kit goes on sale in US chain Best Buy over the coming months alongside eMachines-branded products. The pricing of the two lines is designed to complement each other.

Inouye said he wants to return the company's focus to the PC market, and will ease itself away from the consumer electronics kit that has enamoured it of late.

However, having reduced the company's headcount to 3400 at the end of Q2, Gatway chiefs plan to lay off a more than 1400 more staffers during Q3, and again that's going to hit the bottom line in the short term.

Further on, the company wants to get back into the black and will do so sometime in 2005, Sherwood said. ®